Shorter-term junior credit is an area overlooked by investors when faced with an increasingly inflationary market.

That’s according to BlueBay’s Justin Jewell, who advised investors to look for higher-income, shorter-duration solutions in their portfolio, as well as leveraged loans in fixed-income securities.

The prediction that 2022 will be comprised of modest returns amid an increasingly inflationary market is a commonly held outlook, he said. Citywire Selector.

Jewell, noted by Citywire+, said: “2022 looks pretty tricky. Asset prices have held up well, due to the rapid recovery and the various stimulative effects of policy, and so this is unlikely to be a record year.

“The higher spreads seem like 90th percentile, while they’re not wildly expensive, but they’re not terribly cheap either. Default values ​​are likely to be low. You can earn your coupon, but that’s not really sexy.

“If you’re in a year where this is your opportunity, finding positive real income isn’t that easy, and therefore shorter-term junior credit is one of the best places you can go.”

Jewell said the market is on a path that still involves the normalization of monetary policy in 2022, but that could give way to relatively strong growth and a consumer boosted by the financial impulse and plenty of recovery yet to come. in sectors that have been in difficulty. .

“If you are positioning yourself for this scenario, then what you want are higher income, shorter duration solutions in your portfolio.” The options there can be to take a really positive view of the stock market and consider things like value stocks, which naturally have a short duration, or to reduce their yields in fixed income.

“In fixed income, you have leveraged loans, as a zero rate duration higher income solution. But high yield for long-term investors is one of the few places they can go where you have high income, shorter duration.

Portfolio Positions

Rising energy prices made Jewell wary of certain industrial sectors in Europe, to which it reduced its exposure during 2021. “We have reduced the interest rate duration of our portfolios in 2021 , to be less rate sensitive and we reduced exposure to covid recovery sectors, which played a role.

Additionally, Jewell said he has shifted to more defensive sectors, such as telecommunications, which have not been hit as hard by rising labor costs.

Jewell oversees eight portfolios, including the BlueBay European High Yield Bond fund which he co-manages with Citywire +rated Rajat Mittal. Top holdings include Softbank Group Corp (1.57%), Telcom Italia (1.51%) and Ford Motor Credit Company (1.33%).

The fund ranked 66th out of 107 funds in Citywire’s Bonds – Floating Rate Notes sector. It returned 26% over the three-year period to November 2021 or 26%, while the average fund returned 10.7%.